Monday, January 27, 2014

The spring grant cycle is opening. Like athletes in the
starting block, nonprofits are all out there seeking that one magical grant
that will sustain or even rescue their organizations. Can your organization win
the race? More to the point, are you even competitive?

Charitable institutions form to address a problem and
that problem, or rather the solution to it, defines their mission. Remedying
lack of access to food, shelter, housing, education, safety, and healthcare are
all worthy goals, and they usually have access to some sort of non-governmental
funding. Unfortunately, there are far more organizations needing money than
there are grantors to supply it. Some get the financial backing they need and a
great many more do not. Ever wonder why your proposal was turned down?

I asked grantors just that question. The following is a
typical reply to an informal survey I sent out in 2011 to 24 foundations
requesting information on why they might deny funding to smaller charities,
which I defined as NPO's with from $25K to $1M in annual revenue.

"Thank you for
contacting us. Our four (4) main reasons for denying a request are:

1. Poor or no
financial reporting and/or financial controls.

2. Lack of effective
organizational or management structure.

3. Insufficient
ability to provide meaningful results, or no proof of impact.

4. Not sufficiently
related to our mission.

Comment:

We require evidence
that there is an effective management team in place, and that the organization
is run in a professional manner. Since we require a minimum $50K in revenue and a determination letter,
this means that we are normally dealing with organizations that have been in
existence for 4 years and up. Size doesn't seem
to necessarily dictate a well-run organization. We have denied nonprofits with
over a million dollars in revenue, simply because they had poor or
unprofessional business practices. This seems to go hand-in-hand with
relatively poor program design, lackluster or undocumented results and poor fiscal
management."

Twenty-one out of the original 24 foundations contacted
replied to the survey. They ranged from foundations with less than fifty
thousand dollars in annual grants to four that awarded more than five million
dollars annually. The number one complaint was that the applicants were not
"professionally managed". I didn't get a single reply that indicated
the mission was unworthy or unrealistic.

The argument that charities can't or won't adopt
for-profit business management practices will probably rage on for as long as
there are nonprofit organizations. For some reason, there seems to be a misconception about what constitutes running a nonprofit like a business, and whether that is a
good or bad thing. Many nonprofits are very angry that "it's all about the
money, not the mission".

In what way does being accountable for the way in which someone
else's money is used conflict with mission accomplishment? Is it fear of being
judged, a fear of being held accountable for the funds, or a resistance to
oversight, i.e. a loss of control? Why
do boards adamantly declare that they don't need anything from the for-profit
world and then ask for funding that was probably at least originally based in
that same for-profit world? What
standards would they like to have applied to receive funds?

There is a finite amount of money available for the
support of all the charities in the world. It seems somewhat reasonable that
the grantors would want to see that money used to provide maximum results for
each of the dollars they provide. The methodology for determining that
effectiveness isn't a for-profit or a nonprofit method. It is just a method. X
dollars provides Y result, or it doesn't. Proving and accomplishing that
maximum effectiveness requires the same management procedures that turning a
profit in a company does. The procedures are simply tools used to arrive at
your desired result.

If your goal is mission accomplishment, wouldn't it make
sense to put yourself in the best position to achieve that goal? Running your nonprofit in a business-like
manner isn't about becoming an unfeeling and uncaring robot. It's about putting
yourself in a position to win the backing you need to accomplish the mission
you love.

Monday, January 20, 2014

Donor retention is and has always been a problem for
nonprofits. Every major nonprofit advisory organization is advising that donor
retention should be on every nonprofits list of top three things to do in 2014.
Blackbaud's 2012 statistical giving report
states that small nonprofits were far ahead of their large counterparts in that
category, increasing their overall giving by 7.3% in 2012.

I believe that trend can be attributed to the fact that
smaller organizations tend to have more of a personal relationship with donors.
It's easier for their donors to connect with them, and vice-versa. They have missions that more directly impact their
donors. It's easier for interested prospective donors to go to meetings or
attend events to support a local charity than to go to a gala event clear
across the country.

The trick seems to be in retaining that sense of small-town camaraderie
as the organization grows. Online fundraising seems to be gaining ground,
growing by 11% on 2012, but along with that, donors report that they feel more
remote from the organization. The more the organization grows, the more likely it becomes that it will lose that personal interaction.

Many organizations maintain a social media presence, but is
that really what donors want? Expecting
donors to "like" you or retweet you is not the same thing as
interacting with them on a more personal level. Anyone can read a Facebook posting or a tweet, but they have
to initiate the contact.

As far as it goes, macro-connecting at that level is
useful, but it tends to fully engage only those people who are already closely
connected to the organization as volunteers or staff. Donors say that expecting
them to go to a Facebook page really isn't very personal.

The most common reason given for not giving repeat donations
is that the donor didn't feel appreciated. The larger the organization gets,
the harder it is to maintain that one-on-one relationship with donors.

One way to overcome that feeling of rejection is to keep
donors in the loop with a blog or a print or e-newsletter targeted only to
donors. Please don't equate that with an appeal letter. These forms of
communication should convey a feeling of " You are special and we really
appreciate you!". Your purpose should be about replicating that feeling of
small town intimacy, not sticking your hand out in every post or newsletter.

To be useful, these communications need to offer more than
just an instant replay of a social media posting. Those are nice, but should be
expanded upon in blog or newsletter communications.

Perhaps the blog or newsletter could educate donors about
exactly what you did with their money last month. Perhaps there was a
particularly touching story that you can share only with donors, or if you deal
with complex issues, you can offer educational content to further emphasize why
continued support is needed.

For-profits understand that keeping customers and buyers
engaged is an important part of staying profitable, and they use CRM, or Customer
Relationship Management techniques to keep their customers engaged, i.e. to
keep their business top-of-mind with their customers.

Donor retention is exactly the same theory. You want to stay
connected, or at least be the first thing the donor thinks of when they think
about your mission focus. That way, when the inevitable appeal for donations
does go out, it won't have the feel of a panhandler on a street corner.

Far less expensive and certainly more personal than traditional
media campaigns, targeted blogs and newsletters are a great tool to keep those
donors you worked so hard to get, firmly in your corner.

Thursday, January 16, 2014

TheWilliam T. Grant Foundationseeks to improve the lives of youth by
supporting small to medium-size organizations that have already had some
success but lack the funds to make needed improvements.

The foundation’s Youth Service Improvement Grants program, which
awards grants in the amount of $25,000, is open to community-based
organizations in the five boroughs of New York City that want to improve the
quality of the services they offer to young people between the ages of 5
and 25.

To be eligible, applicants must have 501(c)(3) tax-exempt status
and be a community-based organization that provides services to youth located
in the five boroughs of New York City; directly serve youth between the ages of
5 and 25; and have an operating budget between $250,000 and $5 million.
In the case of organizations that serve youth only, this should be the total
budget for the organization. In the case of multipurpose organizations (i.e.,
those not exclusively focused on youth), the organizational operating budget
must be less than $20 million and the budget for services to youth (direct and
indirect costs) must be between $250,000 and $5 million.

Wednesday, January 15, 2014

"The National Arts and Humanities Youth Program Award is the Nation's highest honor for out-of-school arts and humanities programs that celebrate the creativity of America's young people, particularly those from underserved communities. This award recognizes and supports excellence in programs that open new pathways to learning, self-discovery, and achievement. Each year, the National Arts and Humanities Youth Program Awards recognize 12 outstanding programs in the United States, from a wide range of urban and rural settings."Twelve awards of $10,000. Please note that this is not for new programs. From the How to Apply page:

"Have been operational since January 2010 for a minimum of five years, including 2014 [“operational” refers to the operational years of the specific nominated program(s), not the organization’s years of operation, when nominating a program or programs within an organization];"

Be a nonprofit, tax-exempt 501(c)(3) organization, unit of state or local government, or federally recognized tribal community or tribe; and

If you are looking for grant sources, or need an LOI or proposal written, contact me at granthelp@ida.net.

Monday, January 13, 2014

With the deadline to file 1099 forms approaching on January
31, 2014, this is a question I get often.

I get literally hundreds of inquiries each year from
organizations that want to "hire" a grant writer. Most of them don't
seem to know the difference between an employee and an independent contractor. I
have also gotten some inquiries from the Internal Revenue Service asking me to
produce a contract or other proof that I am in fact, an independent contractor .
In spite of that, I have had many clients get extremely upset when I ask them
to sign a contract that establishes that independent relationship.

The IRS has some fairly clear guidelines on what constitutes
an employee. In short, if you control the time, place, method and execution of work, you have an employee. If
you are paying for a specific result,
you have an independent contractor. Thousands of tax returns are audited and
fines and penalties paid every year by businesses that incorrectly classified a
worker as an independent contractor.

Employee status means that the employer pays all the legally
required taxes, and the person may be eligible for any benefits that you offer
other employees of similar status. You may be liable for overtime payment. It
doesn't matter whether the person works
in your office or at home or the corner bar, if you control the manner by which
they create that product, they are employees.

Why does this matter?
Because I consistently get inquiries or see ads like this:

OK, that's great. As an employer you can require just about
anything that isn't illegal or immoral. But you can't classify this person as
an independent contractor to avoid the tax obligations of an employer.

There is a difference between "hiring" and
"contracting with". Do you "hire" your doctor or your
accounting firm? No. You can hire an in-house accountant, but you contract with
an accounting firm.

Independent contractors are self-employed. They pay all the
applicable taxes, insurances, rent, internet fees, equipment costs and all the other
costs that you do in your organization. They have clients, not employers.
That's why the term is independent contractor, not independent employee.

If you want to hire an employee to write grants, go for it.
You will furnish their working space, equipment, phones, paper, ink, bathroom
supplies, and all the other things that go with having an employee. You can
tell them when to work, how to work, and where to work. As the employer, you
also have to pay the taxes.

When you hire an independent contractor you do lose some
control over the when, where and how parts of the equation. You are paying for
a specified result. You are gaining a release from the responsibilities of an
employer, as well as the certainty that you have no further employer-related
obligations like providing health insurance or unemployment insurance. You may
also gain the ability to free up your employees to do things that are of more
immediate benefit to your organization.

Learning the difference between defining an expected result
and controlling a physical body can save you (and your grant writer) countless
hours of conflict and frustration.

What type of ad or RFP indicates that you understand the
difference? I look for a query or RFP
that starts out with (Name or type of organization) is looking for an independent contractor to
(provide grant leads, write grants, seek funding, expand funding base) … or
whatever result you are seeking.

The specific contract language can also indicate that there
may be a conflict in perception. When a prospective client requires the
independent contractor to use a time
tracking program, work specific hours of the day, agree not to have other
clients, report to their office to do the work, or take on tasks not defined in
a contract without adjusting the contract terms, they have crossed the line
between employer and client. If I agree to those restrictions, I expect to be
made a bona-fide employee, and you can bet the IRS will also see that as an
employer-employee relationship.

Using an independent contractor doesn't mean that you have no control over the finished product, or that there is no communication. On the contrary, you will probably have more interaction with an independent contractor than you might have with an employee.

Tuesday, January 7, 2014

A three-year old human services nonprofit was dealing with serious
discord between board members and the executive director. The board felt that overhead
costs at 20% of revenue were too high and that the perceived imbalance was
taking too much money away from programs. The ED countered that the reduced
effectiveness was due to not having enough qualified staff. The board issued an
ultimatum. Reduce staff costs by 20%, or the ED would be replaced.

The ED responded by cutting hours, wages and benefits,
whereupon 4 of 14 staff members quit. Citing failure to deliver client
services, the board fired the ED anyway. The ED then filed a wrongful
termination lawsuit, since the board mandate to reduce costs by 20% was achieved
due to having fewer employees, and having fewer employees impacted client
services. The ED eventually won the case.

On the face of it, this seems like a classic case of a power
struggle between the board and the executive director, with the staff and
clients caught in the middle.

Upon further examination, the actual cause of the imbalance
between overhead and program budgets proves to be more complicated.

The board had previously voted to expand a program by 50%,
as outlined in the five-year plan. They mandated that the counseling center be
open two more hours daily, and four hours on Saturday. This increased payroll
and other overhead costs such as utilities and office supplies by about 12%. In
addition, a change in state regulations required that there had to be an
upper-level professional physically on duty whenever the client services center
was open. Heretofore, the master's level staff only had to be available on call
during evening and weekend hours. Shortly after the expanded program started, state
and county funding for the program was abruptly scaled back by 15% due to
decreased tax revenue.

The immediate problem was that the board failed to
re-assess the challenges to the program and when the problems became obvious,
they responded by trying to cover funding shortfalls by cost reduction alone. In
the long term, their desire to hold administrative and other overhead costs at
10% of revenues was simply unrealistic, given their need for highly qualified
professional staff.

The problem seems very simple. In their zeal to help more
people, the fundraising part of the equation had been overlooked. Instead of
diversifying and expanding sources of non-governmental funding, the nonprofit
was relying solely on government fee-for-service
revenue to pay for the expansion.

The real problem was a failure by the board to adequately
develop contingency planning and funding. As many organizations often do, they
neglected the unpleasant parts of strategic planning. They developed the
strengths and opportunities section well, but failed to acknowledge the threats
and weaknesses portions, taking the rose-colored glasses approach.

You cannot plan adequately without considering worst-case
scenarios. This organization was relying solely on one source of funding and
that source had historically been very sensitive to outside influences, in this
case a substantial drop in state tax revenues coupled with increased regulatory
costs. In addition the board was highly resistant to developing an emergency
fund. All revenue had to be spent on the mission annually, and even the idea of
having excess funds (called profit outside of the nonprofit sector) at the end
of the year was abhorrent to the board.

The board had made half-hearted attempts at fundraising, but
felt that it was unnecessary due to their fee-for-service model. Donor
development or grant research wasn't even mentioned in their financial plan.

The obvious answer was to postpone the planned expansion and
start developing a more diversified funding stream. The NPO's mission was still
being fulfilled in regard to their existing client base, and a 15% fee-based
income reduction was realistic to try to cover with income from fundraisers and
grants.

Instead, this nonprofit came very close to shutting down.
Client services had to be curtailed by a full 75%. The staff eventually settled
at just four paid professionals. In press releases, the nonprofit blamed the
recession and the resulting loss in government funding. In reality, the reason
was poor planning.

Bad
things do happen to good people and organizations. Some things truly are beyond
one's immediate control. Recognizing and planning for that can make the
difference between success and failure.